Reserve Bank of Australia governor Philip Lowe said it won't be long before banknotes are used for "relatively few payments" and cash becomes a "niche payment instrument".

Dr Lowe also said it would be "appropriate" to wind up the cheque system, given the high fixed costs involved, saying "we have not reached that point yet, but it may not be too far away".

But he said the reliability of electronic payments had to be improve and warned of increased regulation, following a spate of recent outages.

"As we rely less on cash, outages affecting retail transactions can have a significant impact on businesses and individuals," Reserve Bank of Australia governor Philip Lowe says. Fairfax Media

"We all need to do better here. As we rely less on cash, outages affecting retail transactions can have a significant impact on businesses and individuals," Dr Lowe told the Australian Payment Summit in Sydney.

"So continued effort needs to be made by all participants in the payments system to reduce operational problems. If this does not happen, then it is possible that the Payments System Board could consider setting some standards."

Dr Lowe said cash would likely always still hold a place in the national payments system, as it wasn't reliant on an electricity network or internet infrastructure.

"Perhaps a more important source of ongoing demand is the fact that using cash does not require the internet to be up, electricity to be working and the banks' systems to be operational," he said. "Banknotes are therefore an important emergency or back-up payment instrument. They are particularly useful in the event of natural disasters or failure of the electronic system."

Huge benefits

Dr Lowe said a cashless society would be of huge benefit to the economy and consumers.

"The greater use of electronic payments can bring efficiency benefits, with lower costs and more functionality and choice for users," he said.

"Looking ahead, there is also more limited scope for fundamental innovation in the cash system compared with the scope for dynamic innovation in electronic payments. So this journey is in our national interest."

"It is now easier than it has been to conceive of a world in which banknotes are used for relatively few payments, that cash becomes a niche payment instrument," Dr Lowe said.

The governor said the functionality, safety and reliability of any electronic payment system was paramount to its future viability.

"The development of the electronic payment system took a major step forward earlier this year with the launch of the New Payments Platform [NPP]," Dr Lowe said.

"I expect that the NPP infrastructure will be the backbone of our electronic payments system for many years to come. But for this to be the case, the system will need to provide the functionality that people require, and it will need to do this on a timely basis.

"[Another] important influence on the rate at which we shift to a more electronic payments system is the public's confidence in the security of the system. More broadly, individuals, businesses, governments and financial institutions all need to be aware of cyber risks."

No strong case for digital currency

Dr Lowe reiterated Mr Richards' point on Monday, saying that there did not appear to be any benefit to having a central bank controlled electronic version of the Australian dollar (or eAUD).

"I spoke about this issue at this conference last year, concluding that we did not see a public policy case for moving in this direction at the time," he said. "In particular, it is not clear that RBA-issued electronic banknotes would provide something that account-to-account transfers through the banking system do not, particularly with the emergence of the NPP. A year on, our views have not changed."